In Europe, a Push by Phone Companies Into TV

Wednesday

Aug 29, 2007 at 4:29 AM

Several European phone companies plan to announce significant expansions of Internet protocol television, or IPTV, this week.

KEVIN J. O’BRIEN

BERLIN, Aug. 27 — Several European phone companies plan to announce significant expansions of Internet protocol television, or IPTV, this week, led by Deutsche Telekom, which is spending 3 billion euros and has linked about 4 in 10 German households to broadband TV.

The moves will put Europe, which some analysts say already is the leader in Internet TV, further ahead of the United States and Asia. But despite the flurry of worldwide interest in digital video, skeptics say it is not clear that IPTV has a future as a stand-alone business for telephone companies.

With IPTV, subscribers pay a monthly fee of 30 to 60 euros, or $41 to $82, to receive digital broadcasts over the phone companies’ networks, to be watched on televisions or computers. These are part of “triple play” packages that also typically include flat-rate Internet access and domestic fixed-line voice calls. The TV lineup usually includes a standard set of 50 broadcast channels as well as 60 or more premium channels, some not available through other companies.

“IPTV’s decisive advantage is its ability to link programming with interactive services,” said Timotheus Höttges, a Deutsche Telekom board member with responsibility for IPTV. “Consumer viewing habits as a result are going to fundamentally change.”

Companies like Deutsche Telekom, Telecom Italia and Vodafone are using the Internationale Funkausstellung, the Continent’s largest consumer electronics convention, to introduce their IPTV expansions.

More than 200,000 people are expected over the five days of the convention, which opens Friday in Berlin.

“Europe is now the most aggressive market for IPTV,” said Steve Rago, an analyst for iSuppli, a research firm in Scottsdale, Ariz., that covers the electronics industry. “Even countries like Lithuania and Slovakia are introducing IPTV.”

About half of the IPTV consumers in Western Europe are in France, according to the consulting firm International Data Corporation, which says there are 2.3 million paid IPTV subscribers in Europe, less than 5 percent of households.

International Data expects the service to have won over about 10 percent of households by 2011.

ISuppli estimates that phone companies will spend $9 billion this year — $3 billion in Europe — building video-ready broadband networks. The phone companies, faced with dwindling voice traffic, are looking to IPTV to fill the gap.

“I can’t think of a single country in Europe where operators are not introducing IPTV,” said Tiaan Schutte, vice president for multimedia at the French company Alcatel-Lucent, which makes IPTV components. “The marketplace is expected to grow aggressively over the next decade.”

Some experts, however, question whether telephone companies will ever reap the same payoff as equipment makers from IPTV, which faces a challenge luring TV viewers from established broadcasters that use the airwaves, cable or satellites. The technology for IPTV, introduced in Europe in 2001 by the Italian company FastWeb, began appearing widely in 2004. Among the makers of IPTV set-top boxes are Cisco, Thomson, Philips, Motorola and Alcatel-Lucent.

In France, four phone companies — France Télécom, Free (a unit of Iliad), Neuf Cegetel and Alice (a unit of Telecom Italia) — and two resellers, Darty of France and Tele2 of Sweden, are competing for IPTV business. A unit of Bouygues, Bouygues Telecom, is also planning IPTV service.

France became Europe’s IPTV leader because the country lacked dominant satellite and cable broadcasters, said Jill Finger Gibson, International Data’s research director in London.

Jean-Christophe Dessange, leader of European IPTV development at Cisco, which sells IPTV equipment, said IPTV had been successful in France because broadcasters and phone companies there “didn’t each demand too big a share of the pie.” He added: “They realized they both had a self-interest in making IPTV work, namely to help them each retain customers and possibly add new ones.”

The French broadcaster Canal Plus, however, is more integrated, controlling the billing of IPTV customers and deriving revenue from its standard package of about 50 channels. Most French triple-play packages of TV, Internet and telephone service begin at 30 euros a month.

In Germany, where over-the-air digital broadcasts and cable service are available in most households, about 40,000 people subscribe to IPTV, according to GFU, organizer of the convention. Deutsche Telekom’s IPTV network has been connected to 15 million households. The technology also faces potential political hurdles. The European Commission is suing the German government, which owns 31 percent of Deutsche Telekom, for keeping competitors off Deutsche Telekom’s new broadband network.

In Britain, the satellite broadcaster BSkyB and the cable monopoly Virgin Media dominate the pay TV market. An IPTV service from the communications company BT Group, BT Vision, began in December.

“It’s still very much an open question whether IPTV will catch on,” said James Crawshaw, an analyst in London at Heavy Reading, a research firm tracking IPTV. “Operators were very enthusiastic a couple years ago. Then they started to question what the return was. None have been able to create a stand-alone business from IPTV.”

Mr. Crawshaw and other analysts said French companies were not generating significant profit from IPTV, if they have made any at all, but were using the technology to retain or attract new Internet and phone customers.

But many hope to turn that around. Arcor, a unit of Vodafone that is Germany’s second-largest fixed-line network, spent 278 million euros in the fiscal year that ended March 31 on network improvements, mostly to upgrade its broadband network. The company plans to introduce Arcor TV in Germany’s 12 largest cities this fall and to expand to 250 cities by the middle of 2008.

The triple-play service will include 50 free and 60 pay channels.

Bernd Wirnitzer, Arcor’s IPTV director, said the prevailing skepticism surrounding IPTV’s commercial potential, like the initial euphoria that accompanied its introduction a few years ago, was exaggerated.

“The technology will allow us to combine voice, Internet and TV in ways that aren’t possible when you buy them from separate providers,” Mr. Wirnitzer said. “And customers will also have the benefit of paying just a single bill instead of three.”

To be successful, phone companies will have to give consumers a reason to change viewing habits, said Carsten Rossenhövel, managing director of the European Advanced Networking Test Center, a company in Berlin that tests IPTV components for phone companies and equipment makers.

“From a technical standpoint, these systems are ready to go,” Mr. Rossenhövel said. “The real challenge for service providers will be to convince consumers to switch to IPTV.”

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